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Internal Fraud: How to protect your company

You don’t want to believe it. But the numbers just aren’t adding up. You want to trust the people who work for you, but eventually you have to come to terms with the fact that someone in your company is stealing money. Not only does it hurt your business, but it’s often a heartbreaking realization for you as a manager or owner.

It’s not always easy to figure out who is the culprit, but there are steps you can take to detect and hopefully prevent fraud within your company.

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Dual control and separation of duties

Understand who is in charge of what financial responsibilities and make sure there are no gaps. Create a system of checks and balances so that the same person who is running payables (bills, invoices, expense reports) isn’t the same person who is reconciling the accounts (balancing the company checkbook, so to speak).

It’s also a good idea for business owners to review financial statements on a weekly or monthly basis.

Automated fraud detection

Consider implementing Positive Pay‡. This automated fraud detection tool is offered by most banks. It’s a relatively simple process. Your company issues checks every month and you send the bank a list of all those checks, including check numbers, amounts and payees. The bank makes sure the checks match up as each one clears. This eliminates any fraudulent or altered checks. Automated fraud detection is a great solution for companies as long as they already have dual controls in place.

Anonymous tip line

Businesses should also consider setting up an anonymous fraud tip line. Internal fraud is most often detected by a tip from another associate. As a business owner or manager, you can’t know everything that’s going on in your company. Giving your associates an anonymous way to notify you is a simple, effective way to detect internal fraud.

Other processes and procedures to consider:

Reputable third-party audits

Periodic reviews of policies, procedures and controls

Diversity of associates’ job functions, including rotation of job duties at times

Don’t think it will happen to you? Keep this in mind. 61 percent of financial professionals reported that their organization experienced attempted or actual payments fraud in 2012. And 26 percent of fraud is committed by an organization’s own associates (Source: Association for Financial Professionals‡). Even though you want to assume the best from your associates, you should have systems in place to ensure that you don’t become another internal fraud statistic.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.

Mr. Bibens is a treasury management officer for UMB’s Commercial Deposits department. He is responsible for providing consultative technology and cash flow management solutions to companies and public entities throughout the Greater Missouri area. He joined UMB in 2010 and has 10 years of experience in the financial services industry.

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